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Discussion raises questions

Opinions were shared and questions were raised during a discussion that was held by the National Retailers Association (NRA) to address the need to close the GST loophole.

The open discussion saw NRA CEO Gary Black reiterate the need for the federal government to remove the $1000 GST threshold to level out the playing field for Australian retailers.

“The mood is changing; people now do see that we don’t have a level playing field and that Australian businesses and jobs are being put at risk in this exemption. No longer is the debate characterised by a discussion about whether a new tax is to be posed on consumers,” he said.

A survey conducted by the NRA found that 96 per cent of retailers said continued operation of this threshold has negatively impacted on the growth of employment.

Also, 46 per cent of retailers said there has been a negative impact on their turnover in the last three years, despite the GST threshold having been an issue for retailers for many years. In terms of sales, the survey found that 76 per cent responded saying they lost more than 20 per cent of sales to the online channel.

“Government policy around this issue is a mess. We have a consumption tax that was always intended to apply on imported goods. It was never intended to be an exemption in this design and that design is now being significantly undermined,” Black said.

“We think over the next five years we’d reach a point where $1 billion per annum is lost in GST collection because of this exemption.”

It was also highlighted by Bob Fraser, director of Connor Anderson International and fellow of the Customs Brokers and Forwarders Council of Australia, that all imported goods that come via air or sea mail are checked by customs.

Fraser said customs rely on electronically received data about the cargos from an overseas agent who prepares the transport document.

“We rely on that data and we have no way of checking it until the cargo lands,” he said.

“In most cases the customs systems electronically look at the data that has been reported and makes a decision whether or not to release the cargo, but 98 to 99 per cent of the cases it will be released without any further custom inspection.”

However, this raised the issue of whether greater regulation was needed at customs as an example was provided that illustrated that there were importers rorting the system.

For example, it was highlighted by Black that goods that were being sold on eBay for $1500, arrived in Australia with documentation declaring the value of the good at $250.
“Retailers have complained that there has been some deliberate undervaluation of products also to avoid paying GST,” Black said.

Craig Woolford, director of Consumer Research – Citi Investment Research and Chartered Financial Analyst, said there is no doubt that offshore online is growing.

“Twelve months to June 2010 there was $874 million worth of airmail and seamail that came through under $1000 and the average value was $109 per package then given the nine months until the end of March its $932 million with an average pack size valued of $123. So if you analyse it and compare the growth rate year-on-year there is 42 per cent growth in dollar value of packages in Australia, which is pretty significant,” he said.

“That suggests that offshore online is growing at 52 per cent and that’s enormous and it makes it a meaningful contribution to a reduction to the soft retail backdrop that we’re seeing in Australia.

“Normally Australian retail would grow at around 6 per cent. The leakage of sales offshore has knocked off 1.2 per cent off the growth, taking growth down to 4.8 per cent instead of 6 per cent because of this online issue. But obviously the interest rates and the exchange rate are also affecting retail growth.”

The NRA expects to put in its submission for the Productivity Commission’s inquiry into the retail sector.

“We don’t agree on the government’s position of the Productivity Commission. It would’ve been better for them to resource that activity than to commission a productivity inquiry, which is not limited to this issue but to every problem that potentially plays or limits the retail sector. We believe it was more a political manoeuvrer to buy the government time to reflect on this consideration.”